When you borrow money to buy a house, you have to make monthly payments to pay off your loan. Your monthly mortgage payment is actually comprised of a few different factors. While these can vary from loan to loan and borrower to borrower, most mortgages are all made up of P.I.T.I. Keep reading for a full mortgage breakdown!
P.I.T.I. stands for Principal, Interest, Taxes, and Insurance.
The Principal is the actual payment that goes toward paying down the loan. With a regular amortizing loan, your mortgage balance will be reduced by the principal paid each month.
Interest is the monthly payment that goes to the mortgage lender for lending you the money. This will be based on your loan amount, rate, and how far into the loan you are.
Good ol’ taxes. In the case of home ownership, the taxes you’re paying are property taxes paid to the county you live in for owning the property. This can vary drastically between counties.
The insurance part is homeowner’s insurance. With a mortgage, you can choose whichever insurance company you like as long as they meet the lender’s requirements.
In addition, some loans require mortgage insurance. This is usually required if you can’t afford a big down payment, since the lender is less confident in your ability to pay off your mortgage. The price you’ll pay for mortgage insurance will vary by loan type, down payment, and sometimes your credit score.
Our goal is always to make sure our clients understand the full picture, and not just what their principal & interest is. Furthermore, we help our customers compare different rate options, loan programs, and mortgage insurance options – all of which impact your total monthly cost.